SBI seeks merger of 5 rural banks in N-E: Proposed entity to have deposit base of Rs 3,578 crore


March 27, 2016
Merge to grow

This refers to the report “SBI seeks merger of 5 rural banks in N-E” (Business Standard, March 26). In India, institution-building in the financial sector has been an ongoing process since 1950’s. GOI and RBI have taken care to see that the institutional
infrastructure for providing banking services changed with times and remained, by and large, healthy and sound. Setting up of State Bank of India, merger, amalgamation and closure of several units in the private sector to reduce them to a manageable number during 1950’s, nationalisation of banks, setting up Regional Rural Banks, issue of licences for new private sector banks and the present initiatives to set up payment banks and small banks are all part of a conscious design to bring about need-based changes in the banking system.
In the above context, continuation of the efforts to make RRBs stronger and viable through merger has to be welcomed by all. Perhaps, time is opportune to have a closer look at the banking infrastructure in India, for a total overhaul. The Committee on Indian Financial System (Narasimham Committee, 1991) had  visualised a structure for Indian Banking System with ‘three or four large banks that could become international in character, eight to ten banks with a network of branches throughout the country engaged in ‘universal banking’, local banks whose operations would generally be confined to a specific region and rural banks (including Regional Rural Banks) whose operations would be confined to the rural areas and whose business would be predominantly engaged in  financing of agriculture and allied activities’.  Owing to resistance from various quarters, banking sector reforms, especially those relating to structural changes are being taken up in piece-meal. Still, a vision document about the banking infrastructure that will serve the needs of 2025 is an idea whose time has come.  This will be in consonance with the intention of GOI expressed in paragraph 132 of 2014-15 Budget Speech which read:
132. After making suitable changes to the current framework, a structure will be put in place for continuous authorisation of universal banks in the private sector in the current financial year. RBI will create a framework for licencing small banks and other differentiated banks. Differentiated banks serving niche interests, local area banks, payment banks etc. are contemplated to meet credit and remittance needs of small business, unorganised sector, low income households, farmers and migrant work force.”

M G Warrier, Mumbai


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